The Colorado shale oil boom is adding billions of dollars to oil company balance sheets and millions to the coffers in counties where drilling takes place — but it hasn't amounted to much for the rest of the state.

While thousands of wells are being drilled in the Niobrara shale formation — mainly in Weld County — none is likely to pay state tax after three years, according to one economic analysis.

Those tax payments are being reduced by tax credits equal to $208 million a year, according to a Colorado Legislative Council staff analysis.

In 2013, Colorado surpassed a 60-year-old record, producing 64 million barrels of oil — valued at about $5.7 billion.

"We have a one-time resource we are not collecting on," said Matt Samelson, an attorney with the Western Resource Legal Center.

The size and role of energy taxes varies across the West, with Colorado having one of the lowest rates. Some states have raised more and turned it into a statewide benefit.

Wyoming collects about $1 billion a year and uses the money to fund highway and water projects and to provide grants to all cities and towns based on population.

A portion goes to a trust fund, now valued at $6.2 billion, whose interest, dividends and capital gains go to the Wyoming general fund.

Advertisement

Montana is using oil and gas taxes for statewide property tax relief.

Half of Colorado's severance taxes goes to the state Department of Natural Resources, and the other half goes to the counties impacted by oil and gas development.

"The goal is to help those counties cope," said Weld County Commissioner Barbara Kirkmeyer.

Colorado's severance tax also funds water and wildlife projects across the state, as well as covering the cost of state oversight of oil and gas and minerals, said Mike King, director of the state Department of Natural Resources.

"Severance taxes are projected to be $190 million this year," King said. "That's a significant number."

Colorado's energy-tax structure is also creating a mismatch between counties where the money is generated and those getting that money back.

Weld County is awash in oil money, while La Plata County, which yielded 44 percent of the state's energy taxes in 2013, is facing an austerity budget.

"We are getting the short end of the stick," said La Plata County Commissioner Gwen Lachlet.

Anadarko Petroleum Corp. tax specialist Travis Holland said the Colorado system is complex and could use some modifications, but the industry is following the rules as written.

Colorado produced 49 million barrels of oil in 2012, worth an estimated $4.1 billion. About 80 percent of the oil came from Weld County.

According to the Colorado Legislative Council study, the state tax on oil and gas in 2012 was $118.3 million — a tiny fraction of the $10.6 billion in overall state tax collections.

The small amount of revenue and the volatility of energy prices on which it is based are reasons that little attention is paid to the tax in the statehouse, said Carol Hedges, director of the Colorado Fiscal Institute, a nonprofit think tank and legal center.

"It just isn't seen as a source for ongoing funding," she said.

The state's main levy on oil and gas is the severance tax, which ranges from 3 to 5 percent of sales.

Producers can, however, take the bulk of local property taxes — also called the ad valorem tax — as a credit against the state tax. Low-producing wells, called stripper wells, don't have to pay at all.

As a result, the effective tax rate is 1.3 percent, according to the Colorado Legislative Council analysis.

"We are one of the few states that allows a credit against severance taxes," said Mary Ellen Denomy, a petroleum accountant, who audits oil and gas taxes for three Western Slope counties.

This doesn't mean the industry isn't paying taxes.

In 2013, the state collected $118.3 million in severance taxes, according to the state legislative council analysis.

Houston-based Noble Energy said it paid more than $36 million in severance taxes in 2013 and estimates its 2014 tax bill will be nearly $50 million. The company paid $66 million in property taxes in 2013.

The Woodlands, Texas-based Anadarko Petroleum Corp., the second-largest operator, in 2013 paid nearly $83 million in property taxes. It would not disclose its severance payments.

The challenge for companies is balancing between local taxes and the state tax since Colorado has the widest variation of local property taxes among the oil states, Holland said.

As a big producer, Anadarko pays severance at the top 5 percent rate.

"In an area with a 3 percent tax rate, that doesn't make a big difference, but some areas have tax rates in excess of 17 percent, and that becomes unworkable," Holland said.

Compounding the problem is an odd mix of petroleum geology and accounting.

The state requires the severance tax payment be made in the year that the oil and gas are sold.

The property tax rate, however, isn't set until the end of the year and paid early the next, so the tax credit — equal to 87.5 percent of the tax bill — is applied against the second year's severance tax.

The oil and gas production out of shale wells declines sharply year after year.

"You are always applying a bigger credit against a lower production," said Mark Haggerty, an economist with Headwaters Economics, a nonprofit research group in Bozeman, Mont.

When the local tax rate is above 58 mills, there is no severance tax.

"The Front Range counties where shale development is taking place — Weld, Arapahoe, Adams — have millage rates above that threshold," said Samelson, of the Western Resource Legal Center.

The total local and county mill rate is 69.7 for Weld, 103.6 for Arapahoe and 106 for Adams, according to the state Department of Revenue.

Headwaters did an analysis of 1,200 wells drilled in the Niobrara in the past five years and found that none was paying state tax after three years.

The oil and gas industry paid $264.7 million in taxes to Weld County, municipalities and school districts in 2013 — more than half of all the taxes paid in the county.

The county is building a $100 million contingency fund, creating a new crime lab, expanding and extending 34 miles of heavily used County Road 49, and issuing a temporary tax credit for all property owners.

The county has neither short- nor long-term debt.

"Oil and gas have been huge in the county for the last 20 or 25 years," Weld County Commissioner Kirkmeyer said.

"But we've been through boom and bust cycles and know you have to manage carefully," said Kirkmeyer, who also served as director of the Department of Local Affairs, which distributes the severance funds.

As for the distribution formula, Kirkmeyer said all the counties were at the table when it was devised.

"You look at the formula, the mixing and mingling of types of accounting, the severance tax's low rate — this is a system that needs an overhaul," said Denomy, the petroleum accountant.

One-day event to run slide down University HillIt's not quite the alternative mode of transportation that Boulder's used to, but, for one day this summer, residents will be able to traverse several city blocks atop inflatable tubes.